1803, when the newly born United States bought Louisiana in the south from France, all the funds came from Bahrain Bank. Although Bahrain Bank had a strong competitor at that time, a Jewish-run Ross Seto Bank, it was the first choice of the government, major companies and many customers. 1886 Bahrain Bank issued "Guinness" securities, and buyers poured into the bank with application forms. Later, they had to use the police to maintain it. Many people waited in line for hours, bought a small amount of stocks and then waited for an opportunity to sell them. By the time it was sold the next day, the share price had doubled.
At the beginning of the 20th century, Bahrain Bank was honored to acquire a special customer: the British royal family. Thanks to the outstanding contribution of Bahrain Bank, the Bahrain family has won five hereditary titles in succession. This is also a world record, thus establishing the prominent position of Bahrain Bank.
1July, 989, Lisen officially went to work in Bahrain Bank. Prior to that, he was an employee of the clearing department of Morgan Stanley Bank. After entering Bahrain Bank, he quickly won the opportunity to work in Indonesia branch. Because he is patient, persistent and good at logical reasoning, he can quickly solve many unsolved problems and make progress in his work. Therefore, he is regarded as an expert in futures and option settlement. The London headquarters is quite satisfied with Allison's work in Indonesia and allows him to arrange suitable positions overseas. 1992, Bahrain headquarters decided to send him to Singapore branch to set up the futures options trading department as the general manager.
No matter what deal you make, mistakes are inevitable, but the key is to see how you handle it. This is especially true for futures trading. For example, some people will mistake the "buy" gesture for the "sell" gesture, some people will buy the contract at the wrong price, some people may not be cautious enough, some people may buy the March futures when they should buy the June futures, and so on. Once a mistake is made, it will cause losses to the bank. After these mistakes happen, banks must deal with them quickly and properly. If the error cannot be recovered, the only feasible way is to transfer the error to an account called "wrong account" in the computer and report it to the bank headquarters.
When Ellison worked as a futures trader in Singapore from 65438 to 0992, Bahrain Bank originally had a "wrong account" with the account number of "99905" to deal with mistakes caused by negligence in the trading process. This was originally a normal wrong account in the operation of the financial system. 1in the summer of 1992, Gordon Bousser, who was in charge of liquidation in London, called Alison and asked her to set up another "error account" to record minor errors and deal with them in Singapore, so as not to bring trouble to her work in London. So Allison immediately called Lisell, who was in charge of office liquidation, and asked her if she could create another file. Soon, Lissel entered some commands into the computer and asked him what account he needed. In China culture, "8" is a very auspicious number. Therefore, Allison regards it as her lucky number. Because the account number must be five digits, a "wrong account" with the account number "88888" was born.
A few weeks later, the London headquarters called again. The head office is equipped with a new computer, and the Singapore branch is required to follow the old rules. All wrong records are still reported directly to London from the "99905" account. The "88888" wrong account was shelved as soon as it was established, but it became a real "wrong account" and was stored in the computer. Moreover, the head office has noticed that Singapore Branch has many mistakes at this time, but Allison cleverly evaded them. The neglected account number "88888" provided Li Sen with the opportunity to make false accounts in the future. If this account had been cancelled, Bahrain's history might have been rewritten.
1 July 992 17, Wang Jin, one of Leeson's traders, made a mistake only1week in Bahrain: when a customer (Fuji Bank) asked to buy 20 Nikkei futures contracts, the trader mistakenly sold 20 contracts, which was discovered in Leeson's liquidation that night. In order to correct this mistake, 40 contracts must be repurchased, indicating that the loss calculated at the closing price of the day is 20 thousand pounds, and it should be reported to the head office in London. However, under various considerations, Allison decided to use the wrong account "88888" to undertake 40 short contracts of Nikkei Futures to cover up this mistake. But in this way, Ellison's transaction became an "owner's transaction", exposing Bahrain Bank to the risk position under the account. A few days later, because the Nikkei index rose by 200 points, the loss of this short position increased from 20,000 pounds to 60,000 pounds (note: Alison's annual salary was less than 50,000 pounds at that time). At this time, Alison was even more afraid to report this mistake.
Another mistake exactly like this was made by George, Allison's good friend and executor. George and his wife divorced, immersed in pain all day and began to give up on themselves. Alison likes him because George is his best friend and one of the best traders. But soon George began to make mistakes. Allison indicated that he had purchased all 65,438+000 September futures with a value of 8 million pounds, and several trading vouchers were not filled in at all.
If George's mistake gets out, Allison will have to bid farewell to his already satisfied life. It is easy for Alison to record George's mistakes in the "88888" account, but at least three problems bother him: first, how to make up for these mistakes; Second, how to avoid the internal audit of London headquarters at the end of the month after the "88888" account record is wrong; Thirdly, SIMEX requires them to add margin every day, and they will calculate how much the Singapore branch loses every day. The "88888" account can also be displayed on the big screen of SIMEX. In order to make up for the employee's mistakes, Ellison transferred the commission he earned to his account, but of course, the premise was that these mistakes could not be too big and the amount of losses caused could not be too big, but George's mistakes were really too big.
In order to earn enough money to make up for all the losses, Alison took more and more risks. At that time, he was trading a large number of cross positions, because the Nikkei index was stable at that time, and Allison earned an option premium from this transaction. If you are unlucky and the Nikkei index changes greatly, this transaction will cause great losses to Bahrain Bank. Alison did well for a while. By July, 1993, he had turned the loss of 6 million in the "88888" account into a slight surplus. At that time, his annual salary was 50,000 pounds, and the year-end award was nearly 654.38+10,000 pounds. If Leeson stops here, the history of Bahrain will also change.
In addition to covering up the mistakes for traders, another serious mistake is to win over Bonifay, the biggest customer of the Nikkei market. In the last few days of 1993, the market price soared by more than 1000 every day, and the computer screen used for settlement records frequently broke down, resulting in countless accumulated transactions. Because the system can't work normally, the transaction record depends entirely on manpower. When all kinds of mistakes were discovered, Leeson's loss had reached nearly $65,438 +0.7 million in one day. In the case of no choice, Alison decided to continue to hide these mistakes.
1994, Alison was numb to the amount of loss. The loss of the "88888" account ranged from 20 million to 30 million pounds, and reached 50 million pounds in July. In fact, many transactions made by Ellison at that time were dominated by market trends, not because of his expectations of the market, but because he had become a puppet manipulated by his risk part. What he could think of at that time was which direction of market changes would make him turn the tables and make up for the loss of the "88888" account, so he tried to influence the market changes in that direction.
In his autobiography, Leeson described: "I am ashamed that I have become such a liar-it was a small mistake at first, but now it has surrounded me like cancer." My mother certainly doesn't want to raise me like this. "
From the institutional point of view, the most fundamental problem in Bahrain lies in the confusion of trading and liquidation roles. 1992 After going to Singapore, Lisen worked as the manager of the futures trading department and the clearing department in Bahrain and Singapore. As a trader, Allison's original job was to buy and sell derivatives for Bahrain's customers and engage in arbitrage for Bahrain, with little risk. Because of the agent operation, the risk is borne by the customer himself, the trader only earns commission, and the arbitrage only earns the price difference between the markets. For example, Leeson used the different prices in Singapore and other markets to make profits for Bahrain in a short time. Generally speaking, banks allow their traders to hold a certain number of risky positions. However, in order to prevent traders from being exposed to excessive risks in their banks, such permission is usually set quite limited. Through the daily settlement work of the clearing department, banks can also effectively understand and master the situation of their traders and risk positions. Unfortunately, however, Ellison is responsible for both trading and liquidation.
In fact, a week before Lisson arrived in Singapore, there was a communication inside Bahrain, which caused concern about the possible disaster caused by this issue. But this concern was ignored, so that after Allison took office, she still worked in the trading and clearing department. If Allison is only in charge of the clearing department, then he will not cover up the wrong needs and opportunities of other traders, nor will he eventually get out of control.
When the loss reached 50 million pounds, Bahrain Bank sent someone to investigate Lisong's account. In fact, there is a balance sheet every day and there are obvious records every day. It can be seen that even at the end of the month, the false accounts made by Allison to cover up the problem are easy to be discovered-if Bahrain really has a strict censorship system. Alison forged a deposit of 50 million pounds in Citibank, but this 50 million pounds has been misappropriated to make up for the loss in the "88888" account. After checking the accounts for a month, no one checked the accounts of Citibank, so that no one found that there was no deposit of 50 million pounds in Citibank's account.
With regard to the balance sheet, Peter Bahrain, chairman of Bahrain Bank, commented in March 1994 that the balance sheet is useless because its composition may undergo major changes in a short time. Therefore, Peter Bahrain said, "It is naive and ignorant to think that we can increase our understanding of a group by disclosing more balance sheet data." No one can imagine the high price paid by Bahrain's chairman who doesn't pay attention to the balance sheet!
In addition, on June199565438+1October1KLOC-0/,the Audit and Taxation Department of Singapore Futures Exchange sent a letter to Bahrain, raising some questions about the funds needed to maintain the "88888" account. Moreover, at this time, Allison had to ask London to remit 6,543,800+pounds every day to pay his extra deposit. In fact, from 1993 to 1994, the investment of Bahrain Bank in SIMEX and Japan market exceeded11000000, which exceeded the limit of 25% for the total overseas funds of British banks stipulated by the Bank of England. To this end, the Bank of Bahrain held several talks with the Bank of England. 1In May 1994, Bahrain Bank obtained the "acquiescence" from the senior officials of the Bank of England in charge of commercial bank supervision, but this acquiescence did not leave any supporting documents, because it violated the internal regulations of the Bank of England and did not ask the top leaders of the relevant departments of the Bank of England.
The most incredible thing is that after the Bank of Bahrain found that the balance sheet showed a difference of 50 million pounds at the end of 1994, it was still not alert to the looseness and negligence of its internal control. During the two months from the discovery of the problem to the subsequent collapse of Bahrain, many high-level and high-level personnel in Bahrain paid attention to this problem, and even the Audit Department of Bahrain headquarters officially investigated it. However, these surveys were deceived by Alison in a very easy way. Alison described this period like this: "I find it incredible that no one came to stop me." People in London should know that all my data are false. These people should know that the cash I ask from the London headquarters every day is wrong, but they still pay the money. "
From the perspective of financial ethics, if all the above-mentioned financial practitioners who participated in the "Bahrain incident" are graded, they should be given a failing score. Many senior managers in Bahrain, in particular, don't go into the possible problems at all, but blindly trust Li Sen and expect him to make money for Bahrain arbitrage. Ironically, two months before Bahrain went bankrupt, at a conference on Bahrain's financial achievements held in new york in February, 1994, 250 Bahraini bankers all over the world regarded Li Sen as a hero of Bahrain and gave him a long and warm applause.
199565438+1October 18, Kobe earthquake, Japan. In the following days, Tokyo's Nikkei index fell sharply. On the one hand, Lisen suffered more losses. On the other hand, he bought a larger number of Nikkei futures contracts, hoping that the Nikkei index would rise to the ideal price range. 65438+1On October 30th, Allison obtained funds from London at the rate of100,000 pounds per day, and has bought 30,000 Nikkei index futures and shorted Japanese government bonds. On February 10, Allison held 55,000 Nikkei futures and 20,000 Japanese government bond contracts, which was a record for the Singapore Futures Exchange. The more transactions, the greater the loss.
All these transactions are charged to the "88888" account. The transactions in the account can be concealed, because they are also responsible for the inventory, but the extra margin cannot be concealed. Alison continued to transfer money under various excuses. This looseness is unbelievable. In mid-February, the total share capital of Bahrain Bank was only 470 million pounds.
On February 23rd, 1995, the last day of Bahrain futures, Allison's efforts to influence the market direction completely failed. The Nikkei stock price closed down to 17885, and Risen's long-term risk position in Nikkei futures has reached more than 60,000 lots; While the price of Japanese bonds has been rising all the way, its short risk position has reached 26,000 lots. The loss brought by Leeson to Bahrain finally reached a high of 860 million pounds when Bahrain executives were still dreaming of dividends the next day, which led to the end of the oldest Bahrain bank in the world.
The report on the bankruptcy of Bahrain Bank published by Singapore on June 5438+0995+ 10/7 and a feeling in Li Sen's autobiography may best express our regret over the Bahrain incident. A passage in the conclusion of the report is: "If Bahrain Group can take timely action before February 1995, then it is possible for them to avoid collapse. By the end of 1995 1, even if heavy losses have occurred, these losses are only final losses 1/4. If the management of Bahrain knew nothing about the "88888" account before bankruptcy, we can only say that they have been avoiding the facts. "
"There were a group of people who could have exposed and stopped my tricks, but they didn't," Leeson said. I don't know the boundary between their negligence and criminal negligence, and I don't know whether they are responsible for me. But if it was in another bank, I wouldn't have a chance to start this crime. "1On February 26th, 1995, nick leeson, the futures manager of Bahrain Company in Singapore, failed to invest in the Nikkei 225 stock index futures, which caused Bahrain Bank to suffer huge losses, with a total loss of $654,380.4 billion. In the end, it was impossible to continue to operate and declared bankruptcy. Since then, this old commercial bank with a history of 233 years and good performance has disappeared in the City of London and even the global financial community. At present, the bank has been taken over by the Dutch International Bank Insurance Group.
Bahrain Bank Group was once the oldest and most prestigious commercial banking group in London, England. It is famous for its stable development and good reputation, and its customers are mostly dignitaries. Queen Elizabeth II was one of her clients. Bahrain Bank Group specializes in enterprise financing and investment management, and its business outlets are mainly in emerging countries and regions in Asia and Latin America. The pre-tax profit of Bahrain Bank in 1994 is still as high as1500,000 US dollars, and the bank once hoped to expand its business in China. However, a financial speculation the following year completely shattered all the development plans of the bank.
The direct cause of the bankruptcy of Bahrain Bank is that nick leeson, the futures manager of Bahrain Company in Singapore, misjudged the trend of Japanese stock market. 1995 65438+ 10, the Japanese economy showed a recovery momentum. Allison is optimistic about the Japanese stock market, buying a large number of futures contracts in Tokyo and Osaka respectively, hoping to make a big profit when the Nikkei index rises. Unforeseen things happened. June199565438+1October 17 The sudden Hanshin earthquake in Japan hit the recovery momentum of the Japanese stock market, and the stock price continued to fall. As a result, the loss of Bahrain Bank was as high as $6,543.804 billion, which was almost all the assets of Bahrain Bank at that time. This once brilliant financial building collapsed. The news of the bankruptcy of Bahrain Bank Group shocked the international financial market, and the stock markets everywhere were affected to varying degrees. The exchange rate of the pound fell sharply, and the exchange rate against the mark fell to the lowest level in history. The hidden influence of Bahrain Bank incident on European and American financial industry is immeasurable.
Things look simple on the surface, and Alison's misjudgment is the fuse of the whole incident. However, it is this incident that has attracted close attention all over the world, and the high risk of financial derivatives has been widely recognized. From Ellison's personal misjudgment to the collapse of the entire Bahrain Bank, the investment risk has doubled with the return on investment in financial derivatives. This is determined by the "leverage" characteristics of financial derivatives themselves.